Principles of Corporate Finance
13th Edition
ISBN: 9781260465099
Author: BREALEY, Richard
Publisher: MCGRAW-HILL HIGHER EDUCATION
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Question
Chapter 6, Problem 22PS
Summary Introduction
To determine: The additional revenue needed for each year to recover the initial investment cost.
Equivalent annual cost is the annual cost for owning, maintain, and operating an asset for its entire life. It can be used for making capital budgeting decision and it helps to compare the cost-effectiveness of various assets that have unequal lifespans.
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In 2022, the California Air Resources Board (CARB) started planning its “Phase 3” requirements for reformulated gasoline (RFG). RFG is gasoline blended to tight specifications designed to reduce pollution from motor vehicles. CARB consulted with refiners, environmentalists, and other interested parties to design these specifications. As the outline for the Phase 3 requirements emerged, refiners realized that substantial capital investments would be required to upgrade California refineries.Assume a refiner is contemplating an investment of $500 million to upgrade its Californian plant. The investment lasts for 22 years and does not change raw material and operating costs. The real (inflation-adjusted) cost of capital is 10%.How much extra revenue would be needed each year to recover that cost? (Enter your answer in dollars, not millions, rounded to the nearest whole number.)
In 2022, the California Air Resources Board (CARB) started planning its "Phase 3" requirements for reformulated gasoline (RFG). RFG is
gasoline blended to tight specifications designed to reduce pollution from motor vehicles. CARB consulted with refiners,
environmentalists, and other interested parties to design these specifications. As the outline for the Phase 3 requirements emerged,
refiners realized that substantial capital investments would be required to upgrade California refineries.
Assume a refiner is contemplating an investment of $440 million to upgrade its California plant. The investment lasts for 29 years and
does not change raw material and operating costs. The real (inflation-adjusted) cost of capital is 11%.
How much extra revenue would be needed each year to recover that cost?
Note: Enter your answer in dollars, not millions, rounded to the nearest whole number.
Annuity payment
In 2022, the California Air Resources Board (CARB) started planning its “Phase 3” requirements for reformulated gasoline (RFG). RFG is gasoline blended to tight specifications designed to reduce pollution from motor vehicles. CARB consulted with refiners, environmentalists, and other interested parties to design these specifications. As the outline for the Phase 3 requirements emerged, refiners realized that substantial capital investments would be required to upgrade California refineries.
Assume a refiner is contemplating an investment of $500 million to upgrade its California plant. The investment lasts for 22 years and does not change raw material and operating costs. The real (inflation-adjusted) cost of capital is 10%.
How much extra revenue would be needed each year to recover that cost?
Chapter 6 Solutions
Principles of Corporate Finance
Ch. 6 - Cash flows Which of the following should be...Ch. 6 - Cash flows Reliable Electric, a major Ruritanian...Ch. 6 - Prob. 3PSCh. 6 - Prob. 4PSCh. 6 - Real and nominal flows Mr. Art Deco will be paid...Ch. 6 - Real and nominal flows Restate the net cash flows...Ch. 6 - Real and nominal flows Guandong Machinery is...Ch. 6 - Working capital Each of the following statements...Ch. 6 - Prob. 9PSCh. 6 - Project NPV Better Mousetraps research...
Ch. 6 - Project NPV A widget manufacturer currently...Ch. 6 - Project NPV Marsha Jones has bought a used...Ch. 6 - Project NPV United Pigpen is considering a...Ch. 6 - Project NPV Imperial Motors is considering...Ch. 6 - Project NPV and IRR A project requires an initial...Ch. 6 - Taxes and project NPV In the International Mulch...Ch. 6 - Depreciation and project NPV Suppose that Sudbury...Ch. 6 - Depreciation and project NPV Ms. T. Potts, the...Ch. 6 - Prob. 20PSCh. 6 - Prob. 21PSCh. 6 - Prob. 22PSCh. 6 - Equivalent annual cash flow Look at Problem 22...Ch. 6 - Equivalent annual cash flow Deutsche Transport can...Ch. 6 - Prob. 25PSCh. 6 - Mutually exclusive investments and project lives...Ch. 6 - Mutually exclusive investments and project lives...Ch. 6 - Mutually exclusive investments and project lives....Ch. 6 - Mutually exclusive investments and project lives...Ch. 6 - Mutually exclusive investments and project lives...Ch. 6 - Replacement decisions Machine C was purchased five...Ch. 6 - Replacement decisions Hayden Inc. has a number of...Ch. 6 - Replacement decisions. You are operating an old...Ch. 6 - Replacement decisions. A forklift will last for...Ch. 6 - The cost of excess capacity The presidents...Ch. 6 - Effective tax rates One measure of the effective...Ch. 6 - Equivalent annual costs We warned that equivalent...
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